A.J.\'s Wildlife Emporium manufactures two unique birdfeeders (Deluxe and Super

Question

A.J.'s Wildlife Emporium manufactures two unique birdfeeders (Deluxe and Super Duper) that are manufactured and assembled in up to three different workstations (X, Y, and Z) using a small batch process. Each of the products is produced according to the flowchart below. Additionally, the flowchart indicates each product's price, weekly demand, and processing times per unit. Batch setup times are negligible. A.J. can make and sell up to the limit of its weekly demand and there are no penalties for not being able to meet all of the demand. Each workstation is staffed by a worker who is dedicated to work on that workstation alone and is paid $17/hr. The plant operates 40 hrs a week, no overtime. Overhead costs are $2,200/week. Based on the information provided, as well as the information contained in the flowchat, answer the following questions.

a. Using the traditional method, which bases decisions solely on a product's contribution to profits and overhead, what is the optimal product mix and what is the overall profitability?

The product mix obtained using the traditional method is as follows. (Enter your responses as whole numbers.)

b. Using the bottleneck-based method, what is the optimal product mix and what is the overall profitability?

According to the bottleneck method, select the best product mix according to the dollar contribution margin per minute of processing time at the bottleneck workstation.

Calculate the contribution margin per minute of processing time at the bottleneck Station X. Start with the time required per unit at bottleneck and then find the ratio.

Step 1 Station ZStation Y (25 min)(13 min) Step 2 Step 3 Station X (13 min) Product Deluxe Price: $74/unit Demand: 63 units/wk $12 Raw materials Purchased part Step 2 Station X Station Z (25 min) (11 min) Step 3 Station Y (18 min) Product: Super Duper Price: $69/unit Demand: 72 units/wk $4 Step 1 Raw materials Purchased part

Explanation / Answer

Solution:

Traditional Method: Profit is $1,918.97

Bottleneck Principle: Profit is $2,207.8

Explanation below :

First, the unit profit margins may be calculated as follows:

First Row is Deluxe and second one is Super Deluxe

The labor hours per unit of each product are obtained by adding the times to the respective workstations. At the rate of $17 per hour, the labor cost may then be computed.

Since the profit margin for super dupers is higher, the company should produce these to demand. Once super dupers are produced to the maximum, the amount of deluxe produced depends upon the time remaining at each workstation. A few calculations will show that a maximum of 35.8 units of Deluxe can be manufactured. Consequently, the product mix and the associated profit are:

Thus, the aggregate gross profit is $4,918.97. Accounting for the fixed costs of $3,000, the net profit is $1,918.97.

The bottleneck principle involves first identifying the constrained resource and then computing the relative dollar return per constraint minute for each product. The product returning the higher value is then targeted for maximum production. The calculations for calculating the profits are similar to those done above.

Thus, the aggregate gross profit is $5,207.8. Accounting for the fixed costs of $3,000, the net profit is $2,207.8.

Demand Price ($) Labour Hour Raw Material Parts Cost Per Unit Profit Per Unit 55 76 0.917 12 6 33.58 42.42 69 74 0.983 4 4 24.72 49.28

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